RealTime IT News

Retailers' Woes are Bluefly's Gain

By Erin Joyce

Online fashion discounter Bluefly, Inc. is gaining ground as clothing retailers, especially designer retailers, feel the pinch of over-supply and lack of demand.

The New York-based Bluefly.com said net sales for February jumped by 50 percent to $2.4 million, compared to $1.6 million in sales it took in during the prior February.

The boost for Bluefly comes as retailers such as the Gap cope with sales that are down by an estimated 17 percent so far this year. Department stores, meanwhile, are calling designer vendors and asking them to take product back that's not moving, according to industry watchers.

That means Bluefly.com has been able to negotiate better discount prices on hot ticket designer items, while protecting its margins by avoiding promotional skirmishes such as free shipping offers.

"We're finding the products are more in season and the trend items are very current," said Ken Seiff, Bluefly.com's CEO. Designers that once sniffed about putting their vaunted brands on the Bluefly.com site are taking a second look.

And so are frequent visitors to the Web site. Subscribers to the company's e-mail alerts are finding deeper discounts on fashions on items that are still current, a change from offerings of six months ago.

Prada bags that had once been discounted from $400 to a still pricey-to-some $200 are now below $100 in some cases.

A designer sweater by Elie Tahari, including a rabbit fur collar, retails for $179, close to 50 percent below the $340 retail price.

It's still on the high end, which is good news to Seiff, who is looking to announce Bluefly.com's first profitable quarter by the end of this year.

He has a way to go, given the company's continued losses. But one milestone bodes well for the company, in addition to having a name like George Soros as one of its investors.

For the fourth quarter of 2001, Bluefly reached positive cash flow for the first time, generating $1.3 million from operations compared to the negative burn of $3.4 million in the same, year-ago quarter. Its overall sales were $7.9 million during the period, up from the $5.7 million in revenue during the fourth quarter of 2000.

The turn on cash was due to a 37 percent increase in sales, and a 40 percent reduction in sales and administrative costs, especially customer acquisition costs.

Overall, Bluefly.com's loss from operations for the quarter was $1.4 million (not counting one-time items), compared to a loss of $5.4 million during the same quarter in 2000.

"Looking forward, one of the most encouraging things I've seen is that the discounts we've established are now permanent fixtures in the business," Seiff said.

"We're signing on more designers, and gaining more interest."

One aspect of discounting online that is appealing to designers: their ability to control how the product is displayed.

Seiff said the designers pleased that "they're not putting their brand equity at risk" like they might at an off-price outlet where high-end frocks are often falling from hangers or tossed in a discount bin.

Word of mouth, especially among its mostly female customer base of over 300,000 has also been a secret weapon too. About 63 percent of the company's $7.9 million in sales during the fourth quarter were from repeat customers.

"We're working on enticing customers with more relevant offers," he said, "and spending an enormous amount of time mining customer data."